H1 2007: Solid progress toward growth targets

MOL Hungarian Oil and Gas Plc (Reuters: MOLB.BU, MOLBq.L, Bloomberg: MOL HB, MOL LI, homepage: www.mol.hu), today announced 2007 second quarter and first half preliminary results.

MOL Delivering on Strategic Plan

•         Operational results in H1 2007 in line with expectations

•         Organic growth and development support revised EBITDA targets

•         Doubling of capex year over year to HUF 100.7 bn (HUF 61 bn on acquisitions)

•         Progress on acquisitions in mid- and downstream

•         Capital optimization process commenced

•         Unsolicited and unwelcome approach by OMV rejected

Financial highlights

 ⁽¹⁾ In converting HUF financial data into USD, the following average NBH rates were used: for Q2 2006: 212.0 HUF/USD, for H1 2006: 211.8 HUF/USD, for Q2 2007: 184.3 HUF/USD, for H1 2007: 188.5 HUF/USD.

⁽²⁾ Operating profit excluding the one-off gain of HUF 83.0 bn on the gas transaction and the profit of the subsidiaries sold in this transaction (Wholesale and Storage) in Q1 2006 and the one-off gain on the acquisition of TVK shares (HUF 14.4 bn) realised in H1 2007.

⁽³⁾ Net income in addition to adjustments detailed in ⁽²⁾ excludes in H1 2006 the benefit from MOL Plc’s corporate tax holiday (HUF 24.5 bn calculated at 16% tax rate).

MOL delivered operating profit excluding special items of HUF 146.5 bn in the first half and HUF 87.9 bn in the second quarter. The decline of 16% and 14% year over year, respectively, is a result of the weaker US Dollar and lower hydrocarbon production being only partially offset by higher petrochemical sales and margins.

Net income excluding special items decreased by HUF 32.4 bn to HUF 72.0 bn in H1 2007, reflecting the lower operating profit and impact of non-realised fair valuation loss of HUF 36.8 bn on the option value of Magnolia Finance Ltd.  Excluding the non-realised financial expense and special items, net income would have been up HUF 3.2 bn in H1 2007 compared to the same period last year.

By division, the Company continued to execute well and produce solid results.  Additionally, investments in existing businesses and acquisitions position MOL to deliver future growth.

►    Exploration & Production operating profit was HUF 39.6 bn (USD 209.9 mn) in H1 2007, down by HUF 31.1 bn year-on-year. In Q2 2007 operating profit decreased by HUF 9.6 bn year-on-year, mainly due to a 12% decline in average daily hydrocarbon production (to a large extent explained by the disposal of the Szőreg-1 gas field for conversion into an underground gas storage facility) and a 13% weaker USD against the HUF.

►    Refining & Marketing reached an operating profit of HUF 84.4 bn in H1 2007, down 10% (USD 447.7 mn up 2%) compared to H1 2006. In Q2 2007 operating profit decreased by HUF 12.0 bn to HUF 57.1 bn, as the weakening USD was only partially compensated by increasing refined product sales.  Current cost of supply (CCS) based operating profit increased from HUF 70.2 bn in H1 2006 to HUF 75.7 bn in H1 2007.

►    The Petrochemical segment’s operating profit tripled to reach HUF 24.8 bn (USD 131.6 mn) in H1 2007, already surpassing the HUF 23.3bn recorded in the full year of 2006. In Q2 2007 Petrochemical operating profit increased by HUF 8.3 bn year-on-year fuelled by a strong increase in sales volumes and improving market conditions.

►    Gas Transmission operating profit was slightly lower, declining by HUF 0.5 bn to HUF 17.3 bn (USD 91.8 mn) in H1 2007. In Q2 2007, operating profit increased by HUF 0.8 bn, mainly due to lower operating costs.

►    Corporate and other operating loss of HUF 5.1 bn in H1 2007 contains a one-off gain of HUF 14.4 bn on the acquisition of a 42.25% minority interest in TVK, as a result of the excess of book value of the minority interest acquired in the period.

►    A net financial expense of HUF 33.2 bn was recorded in H1 2007. This includes HUF 9.8 bn interest received, HUF 6.6 interest paid and a HUF 36.8 bn non-realised fair valuation expense on the conversion option embedded in the capital security (Magnolia Finance Ltd.) as a result of strong share price appreciation.

►    Income tax expense more than tripled, rising from HUF 12.1 bn in H1 2006 to HUF 39.3 bn in H1 2007. This was due to a corporate tax holiday at MOL Plc. in 2006 and the different accounting treatment of options connected to MOL shares held by third parties for IFRS and tax purposes.

►    Capital expenditure and investments more than doubled to HUF 100.7 bn (USD 535 million) in H1 2007, boosted by the TVK share acquisition (HUF 49.6 bn), compared to the HUF 43.8 bn (USD 207 million) in H1 2006. Net debt at the end of June 2007 was HUF 35.5 bn, while our gearing ratio (net debt to the sum of net debt and total equity) was 3.3%.

The capital optimization program announced on June 22, 2007 positively improved gearing as at June 30, 2007 with [6.2] million shares being repurchased to the end of the period.  The share buyback program continues into the second half in order to return value to shareholders and bring debt ratios more in line with the sector. (A further USD 1.4 bn has been spent in H2 to date and our gearing ratio has increased to around 25%.)

Mr Zsolt Hernadi, Chairman and CEO of MOL, commented:

“At an operational level, MOL has performed in line with expectations and continues on track to deliver its full year targets. While the accounting treatment of certain financial instruments has adversely impacted headline numbers, the underlying performance of the business is strong and we continue to maintain our position as one of the most efficient oil and gas company in Europe. During the period, we have taken action to underpin our future growth and profitability and secure returns for shareholders.”

Outlook

Looking to the full year, the decline in hydrocarbon production seen in the first half is expected to slow in second half of 2007.  Crack spreads for the full year 2007 are expected to remain largely in line with the level of 2006.  In Petrochemicals, industrial forecasts anticipate favourable market conditions for 2007.  For the Group as a whole, MOL expects to deliver compound annual organic growth in EBITDA of 6.5% by 2011 based on 2006 macroenvironment.

Shortly following the close of the first half, MOL announced that it signed agreements to purchase IES and Tifon, strengthening the Company’s downstream position.  MOL expects both acquisitions to close in the fourth quarter of this year. The Company continues to actively assess a range of acquisition opportunities to further enhance performance.